U.S. Wheat Associates comments on Russian wheat exports

U.S. Wheat Associates (USW) and most of the world's wheat buyers have been speculating about whether or not Russia will implement grain export curbs.

Some conflicting statements by Russian government officials about how best to deal with a much smaller grain crop following a significant drought only clouded the waters, but basic market forces of supply and demand may reveal some answers.

For example, over the past few weeks, Russia's Deputy Prime Minister Arkady Dvorkovich and Agriculture Minister Nikolai Fedorov released statements claiming that no grain export curbs will be necessary. In contrast, Economy Minister Andrei Belousov claimed that export restrictions may still be needed. Russian President Vladimir Putin stated yesterday that the government has no plans to implement any export curbs.

However, he also said the government should ensure that only surplus grain is used for export and that the situation with rising domestic wheat prices needs to be monitored on a daily basis.

Russian wheat prices provide a better picture. Recent SovEcon reports show that Russian wheat export prices have risen 40 percent over the past four months. Some grain traders estimate that Russian wheat prices are currently US$15 to $20 per MT above world prices.

Prices pushed upward as concerns about securing supplies fueled growing domestic demand. Russian wheat export supplies are now much less competitive, which can be seen in Egypt's shift away from importing Russian wheat (USDA now expects Russia will export just 9.0 MMT of wheat in 2012/13).

In mid-August, Egypt released tenders for September and October delivery. Russian grain exporters dominated that business, with up to 11 companies offering for each tender. Based on public information about the transactions, prices offered by Russian traders into Egypt were $21 per MT cost and freight (C&F) lower than French wheat and $47 per MT C&F lower than U.S. soft red winter (SRW) from the Gulf.

By the end of September, Egypt tendered for December delivery. Only one Russian grain exporter made an offer, at a price into Egypt that was $22 per MT C&F higher then French wheat and $2 per MT C&F higher than SRW. In Egypt's tender that closed Oct. 3, Russian wheat was not even offered.

Russian wheat exports went from a torrent to a trickle, all without direct government intervention, though the mixed messages concerning market intervention has undoubtedly influenced the sellers and buyers. Ultimately, diminishing supplies have pushed up Russian wheat prices and buyers are naturally turning to newly price competitive suppliers.